How Corruption Shapes State Policy

Posted on Jun 27, 2014

A few weeks ago, I took a trip to Tennessee—a state that has been called the most corrupt in the country. That’s right, according to a 2010 Daily Beast analysis compiling data about convictions on charges of public corruption, racketeering, extortion, forgery, counterfeiting, fraud and embezzlement, the Volunteer State is America’s single most corrupt. Similarly, a 2012 Harvard study lists Nashville as one of the nation’s most corrupt capitals.

Since I was traveling to the state for a conference about technology and innovation, I had a simple question on my mind: How does such rampant corruption shape state policy?

One analysis comes from researchers at Indiana University and University of Hong Kong. They compared data from 25,000 convictions in public corruption cases with state spending data. As Governing magazine reports, the researchers document that the most corrupt states like Tennessee “tended to spend money on construction, highways, and police protection programs, which provide more opportunity for corrupt officials to use public money for their own gain.” Governing adds that those “states spend less on health, education, and welfare, which provide less opportunity for officials to collect bribes.”

Tennessee’s budget appears to confirm these findings. According to various studies over the last few years, Tennessee has ranked near the bottom for per capita spending on education. Additionally, the Center on Budget and Policy Priorities reports that Tennessee has enacted some of the deepest cuts to higher education funding of any state in the country.

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Of course, an earlier study found one other major way a corruption can shape state policy: through taxpayer subsidies. According to that 2011 analysis from researchers at the Federal Reserve Bank and the University of Michigan, “Cities and counties in states with troubled political cultures demonstrate the greatest willingness to offer business development incentives.” And again, comparing Tennessee’s corruption with its economic development policies seems to confirm this.

According to the watchdog group Good Jobs First, Tennessee is at the top of the list of states offering so-called “megadeal” subsidies to corporations. Likewise, the Nashville City Paper reports that in the name of economic development, the city has been dramatically increasing its subsidies to corporations, including a $65 million outlay for a minor league baseball stadium.

Do those subsidies result in job-creating technology and innovation hubs? While many locales ramping up their subsidies certainly hope so, the jury is still out—and that’s being generous. Indeed, there’s plenty of evidence that subsidies do not create the economic development their boosters promise, and instead they merely cannibalize already-existing economies. Meanwhile, a lot of those subsidies end up being awarded to politically connected firms, calling into question whether they are really designed with any kind of coherent economic development plan in mind.

None of this means a place like Tennessee should be abjectly deemed “Too Corrupt to Fail”—or not yet, anyhow. The state is, after all, the home of Chattanooga. That city developed a publicly owned fiber optic system that delivers some of the world’s fastest Internet speeds—and does so at relatively affordable rates for businesses and consumers. As a result, Fortune calls Chattanooga “a center for innovation” and Wired says it may be the next Silicon Valley.

Any state with that potential in its midst can have a bright economic future, and the encouraging news is that Tennessee’s dirty politics didn’t stop Chattanooga’s efforts. But an exception to a rule is not a rule unto itself. In general, corruption’s deleterious effect on public policy is a serious problem—and not just a purely political problem either. It is a destructive force that can make or break an entire local economy.

David Sirota is the best-selling author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future.” Email him at ds@davidsirota.com, follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.